Morgan Stanley (NYSE:MS) has been added to the short list of leading banking institutions that are scaling back their operations in London, joining the ranks of Standard Chartered, Credit Suisse and Deutsche Bank.
In a move that has been reflective of the broader industry, Morgan Stanley is slashing hundreds of jobs from its debt and currencies division across both New York and London, with the latter facing larger losses of jobs, per a recent Wall Street Journal report.
Last month, Deutsche Bank moved ahead with a dramatic shift in its operations that will ultimately see a reduction of its global workforce by nearly 9,000 full-time jobs by 2020, in addition to 6,000 external contractor positions that are also slated for extinction, largely in London.
Moreover, the German lender is also jettisoning nearly $4.4 billion of assets along with a staggering 20,000 jobs by 2017. Logistically, these job cuts will see a full exit from no less than ten countries, including Argentina, Chile, Mexico, Uruguay, Peru, Denmark, Finland, Norway, Malta and New Zealand.
In addition to Deutsche Bank, Standard Chartered has also announced cuts approximately 15,000 strong in a bid to help jump-start its retail transformation strategy. The news of its job slashes came after the bank recently reported its sagging Q3 2015 revenues that yielded an unexpected -$139 million loss.
Trading Revenues Underscore Decline
Morgan Stanley’s revamping of its London and New York operations come off the back end of a month long slump in trading revenues that the lender fears may persist beyond Q4 2015.
According to the recent report, Morgan Stanley could effectively eliminate as much as a quarter of its business’s workforce, though the cuts are likely to occur across all of the division’s offices, as well as each of the firm’s trading desks.
Morgan Stanley has also come under pressure from shareholders since peaking in July, with its equity returns being held below a 10% target threshold previously set by James Gorman, Morgan Stanley’s Chairman and Chief Executive. Indeed, the company’s shares (NYSE:MS) have sunk off a 52-week high of $41.04 to $34.94 at the time of writing, helped by a tepid boost during the past week.
Sagging earnings and equity returns are not the only forces hurting Morgan Stanley’s outlook. A combination of new capital rules have jointly penalized traditional banks from holding vast inventories of bonds and other debt securities, in essence backing them into a corner on scaling decisions, in regards to their trading businesses.
According to Steven Chubak, an analyst with Nomura Holdings, in a recent statement on Morgan Stanley's operations, “Many investors have been waiting for them to take more drastic action. It doesn’t suggest they expect a continued decline in the 2015, but it does suggest they don’t expect to see a meaningful recovery in the near or intermediate future.”
Many of the industry’s leading banks have all shrunk their fixed-income business in some capacity since the global financial crisis in 2007-8. However, a subsequent market rally in this space has failed to materialize, ultimately facilitating restructuring at key positions.
Less than two weeks ago, Credit Suisse underwent a series of changes to its London-based Macro Hedge Fund Unit, which saw the departure of several members of its team. Per the shakeup, the majority of Credit Suisse’s Macro Hedge Fund Sales unit was let go, including its Head of Macro Hedge Fund Sales, Philippe Katz, as well as Macro Hedge Fund Sales specialists Phil Valori, Jimmy Yip, and Johann Benharroch.
Investors will be eying the group’s Q4 2015 earnings, which in particular will lend more insight into the lender’s outlook. Morgan Stanley recently reported a -42% drop in fixed-income trading revenue in Q3 2015, which instigated the aforementioned tranche of cuts.
